On Monday, Bank of America (BofA) highlighted potential vulnerabilities in foreign exchange (FX) positions post the U.S. nonfarm payrolls (NFP) release, noting light investor flows into the payroll announcement.
The bank pointed out that hedge funds' long positions in the U.S. dollar (USD) and Australian dollar (AUD), as well as short positions in the Canadian dollar (CAD), could be at risk. Additionally, real money long positions in the British pound (GBP) and shorts in the New Zealand dollar (NZD) were notable for their potential exposure.
According to BofA, the GBP experienced weakness as the weakest G10 performer last week, with the bank's own flows being very light.
With GBP positioning at neutral levels, BofA suggested a preference for observing signs of new shorts before re-entering into GBP longs.
In contrast to the GBP, the Japanese yen (JPY) saw a positive trend in options flow. Despite light recent JPY flows, BofA reported persistently positive options flow in the JPY, particularly in the Special Drawing Rights (SDR) market.
The bank mentioned that strength in the USD-JPY pair beyond the 160 mark could be self-limiting. BofA continues to favor a downside in the EUR-JPY pair.
In the emerging markets (EM) foreign exchange sector, BofA noted stronger flow actions. The bank highlighted the continued strong supply of the South African rand (ZAR) and meaningful demand for the Chinese yuan (CNH).
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